FINANCE: Business Owners Caught in Economic Reform

Column by Pat Kummer, CFP

By Pat Kummer

Posted
8/18/11

The extremely slow recovery and new financial regulation has put
handcuffs on small businesses.

Normally the recovery years that follow a significant recession
would be a time for companies to grow. However, this year with the
Dodd-Frank Wall Street Reform and Consumer Protection Act, banks
are queasy about lending, much less to business owners.

Low interest rates are designed to fuel growth. It is a good
thing when businesses are able to borrow in order to expand or
improve. However, the current low interest rates may be going to
waste as many companies are caught in new banking legislation and a
stagnate economic outlook.

Typically, high unemployment rates can also be a good thing for
businesses wanting to expand. In this phase of recovery, finding
good talent at reasonable wages is another plus for industry
growth. However, due to the uncertainty in how companies will be
taxed and when consumer spending will return, business owners have
hunkered down instead.

The focus may be just to stay open or try to maintain the
current staff and supply lines. This in turn could actually create
more drag on the economy hence creating the endless game of
dominos. If the economy were better, businesses would be growing,
and if businesses were growing, the economy would be better.

Rep. Sam Graves, chairman of the House Committee on Small
Business, stated in a recent interview, "I am particularly
concerned about the impact these flaws [in the Dodd-Frank bill]
will have on small firms across America. Small companies are the
cornerstone of the American economy and are our most effective job
creators. On average, seven of every ten new jobs are created by
small businesses."

Rep. Graves is concerned that in the last few years, lending to
small firms has declined to record lows and access to capital is
critical for business success and crucial to our economic
recovery.

Another concern of Graves is that small financial institutions
are disproportionately affected by Dodd-Frank. Many small
businesses rely on small financial institutions, like credit unions
and community banks, to meet their capital requirements. Without
them, these small businesses would have to close their doors. Small
lending institutions lack the capability of larger banks to hire
the additional staff to deal with the additional regulations
created by Dodd-Frank. Therefore, this financial reform may
actually decrease revenue in small banks, further reducing their
ability to lend.

I recently visited a CPA firm that specializes in professional
corporations such as doctors and dentists. Their clients are
concerned about how to borrow for equipment and how to set aside
enough funds to save for retirement when the company is limping
from one month to the next.

It seems like the state of Colorado in particular attracts a
high number of entrepreneurs, and I believe that the community
business is the backbone of America. I hope the recovery continues,
and we can get past the limbo that is keeping the economy stagnant.
Many of us would like to be as productive as possible and add value
to our community. It would be nice if legislation supported that
entrepreneurial spirit instead of extinguishing it.